ISAT: Merger with H3I to be executed

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Ooredo Group (OG) management held an analyst briefing on the merger plan between Indosat (ISAT) and Hutchison 3 Indonesia (H3I). The merger is expected to be completed by end of Dec 21, and the ISAT will offer a buyout share at IDR 5,247 and pay a special dividend. We maintain our Sell call.

Expect synergy from the merger The merger between ISAT and H3I will create the second-largest cellular company with total subscribers of around 100M, and an EBITDA of USD 1,273M (IDR 18T) or around half of Telkomsel’s EBITDA. Hence, ISAT will have an optimal scale to compete in the sector. Furthermore, with the expected synergy from capex and operation, ISAT may generate a higher EBITDA in the future. Currently, the company is working on optimizing the spectrum and capex.

Ooredo and Hutchison will equally control ISAT post-merger The merger will be exercised with 67.4% : 32.6% equity value split between current ISAT and H3I shareholders. It will start with ISAT issuing a total of 1.76B new shares to CK Hutchison (CKH) and 868M new shares to Tiga Telekomunikasi Indonesia (TTI), equivalent to 21.8% and 10.8% stakes of the enlarged capital. Then, CKH will swap its share with a 32.6% new share of Ooredo Asia (OA) that will be renamed Ooredo Hutchison Asia (OHA), and buy a 16.7% stake of OG in OHA by cash amounted to USD 387M, thus OG and CKH will have the same 50% in OHA.

Special dividend for the ISAT pre-merger shareholders Without elaborating the detail, the OG management said that ISAT will pay a special dividend from the selling of 4,200 towers to EPID Menara AssetCo (EPID). ISAT booked an IDR 6.2T gain from the transaction. Assuming this amount will be paid to the current shareholders, it will translate into an IDR 1,135/share dividend.

Buy-out offer at IDR 5,247/share Meanwhile, to the shareholders that disagree with the merger, the company will buy out their shares at IDR 5,247/share (based on an independent valuation). Adding up the special dividend (assuming IDR 1,135), it is equivalent to IDR 6,382/share, 7.5% lower than the current market price. We maintain our forecast at this moment and maintain our Sell call as the current market price has priced in the dividend, all the synergies plus some premium.

ANALYSTS CERTIFICATION. The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subjec t securities or issuers; and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

DISCLAIMER: This research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the

particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT. Aldiracita Sekuritas Indonesia or its affiliates may be involved in transactions contrary to any opinion herein to make markets, or have positions in the securities recommended herein. PT. Aldiracita Sekuritas Indonesia or its affiliates may seek or will seek investment banking or other business relationships with the companies in this report.

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